NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
NOTE 1 - ORGANIZATION
AND NATURE OF OPERATIONS
Cell MedX Corp. (the “Company”) was incorporated under the laws of the State of Nevada. On November 26, 2014, the Company formed a subsidiary, Avyonce Cosmedics Inc., (“Avyonce”) and on April 26, 2016, the Company formed an additional subsidiary, Cell MedX (Canada) Corp. (“Cell MedX Canada”). Both subsidiaries were formed under the laws of British Columbia.
The Company is an early development stage company focused on the discovery, development and commercialization of therapeutic products for patients with diseases such as diabetes. Through Avyonce, the Company is engaged in reselling and marketing spa technology and equipment.
Going concern
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of May 31, 2016, the Company has not achieved profitable operations and has accumulated a deficit of $3,254,597. Continuation as a going concern is dependent upon the ability of the Company to obtain the necessary financing to meet obligations and pay its liabilities arising from normal business operations when they come due and ultimately upon its ability to achieve profitable operations. The outcome of these matters cannot be predicted with any certainty at this time and raise substantial doubt that the Company will be able to continue as a going concern. These financial statements do not include any adjustments to the amounts and classification of assets and liabilities that may be necessary should the Company be unable to continue as a going concern. Management intends to obtain additional funding by borrowing funds from its directors and officers, issuing promissory notes and/or a private placement of common stock.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States of America and are presented in US dollars.
Principles of consolidation
The consolidated financial statements include the accounts of Cell MedX Corp. and its subsidiaries, Avyonce and Cell MedX Canada. On consolidation, all intercompany balances and transactions are eliminated.
Accounting estimates
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of equipment, fair value of stock-based compensation, fair value of financial instruments and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
Foreign currency translations and transactions
The Company’s functional and reporting currency is the United States dollar. Foreign denominated monetary assets and liabilities are translated into their U.S. dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenues and expenses are translated at average rates of exchange during the period. Related translation adjustments as well as gains or losses resulting from foreign currency transactions are reported as part of operating expenses on the statement of operations.
The functional currency of Avyonce and Cell MedX Canada is the Canadian dollar. On consolidation, the subsidiaries translate their assets and liabilities to U.S. dollars using foreign exchange rates which prevailed at the balance sheet date, and translate their revenues and expenses using average exchange rates during the period. Gains and losses arising on settlement of foreign currency denominated transactions or balances are included in the other comprehensive income. The Company has not, to the date of these financial statements, entered into derivative instruments to offset the impact of foreign currency fluctuations.
Revenue recognition
Revenue is recognized when all the following conditions have been met:
·
|
the sales price is fixed or determinable;
|
·
|
pervasive evidence of an agreement exists;
|
·
|
when delivery of the product has occurred and title has transferred or services have been provided; and
|
·
|
when collectability is reasonably assured.
|
Inventory valuation
Inventories are valued at the lower of cost or net realizable value, net of trade discounts received, with costs being determined based on the weighted average cost basis.
Research and development costs
The Company expenses all in-house research and development costs in the period they were incurred. Acquired research and development costs are capitalized to the extent that the sum of the undiscounted cash flows expected to result from the asset can be reasonably estimated or may be verified by an appraisal in certain instances. In all other instances the costs are expensed in the period they were incurred. Acquired research and development costs for a particular research and development project that have no future economic values, are expensed as research and development costs at the time the costs are incurred.
Income taxes
Income tax expense is based on pre-tax financial accounting income. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not some portion or all of the deferred tax assets will not be realized.
Loss per share
Basic loss per share is computed by dividing the net loss attributable to the common stockholders by the weighted average number of common shares outstanding during the reporting period. Diluted net income per common share includes the potential dilution that could occur upon exercise of the options and warrants to acquire common stock computed using the treasury stock method which assumes that the increase in the number of shares is reduced by the number of shares which could have been repurchased by the Company with the proceeds from the exercise of the options and warrants.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
Long-lived assets
In accordance with ASC 360, “Property, Plant, and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount exceeds fair value.
Equipment
Equipment is stated at cost and is amortized over its estimated useful life on a straight-line basis over 3 years.
Financial instruments
The Company’s financial instruments include cash, inventory, amounts receivable, accounts payable, notes and advances payable, and amounts due to related parties. The fair values of these financial instruments approximate their carrying values due to their short maturities.
Stock options and other stock-based compensation
For equity awards, such as stock options, total compensation cost is based on the grant date fair value and for liability awards, such as stock appreciation rights, total compensation cost is based on the settlement value. The company recognizes stock-based compensation expense for all awards over the service period required to earn the award, which is the shorter of the vesting period or the time period an employee becomes eligible to retain the award at retirement.
Recent accounting pronouncements
Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to have a significant impact on the consolidated financial statements of the Company.
NOTE 3 –TECHNOLOGY
On November 25, 2014, the Company completed the acquisition of a proprietary technology for the use of microcurrents for the treatment of diabetes and related ailments (the “Technology”) from Jean Arnett and Brad Hargreaves (the “Vendors”).
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
In consideration for the sale of the Technology, the Company paid the Vendors a total of $100,000 and issued the Vendors options for the purchase of up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.05 per share. The options vest as follows:
Number of Options to Vest
|
Vesting Condition
|
2,500,000
|
Upon the design and commencement of the first clinical trial (vested)
|
2,500,000
|
Upon the completion of the first clinical trial.
|
2,500,000
|
Upon the design and commencement of the second clinical trial.
|
2,500,000
|
Upon the completion of the second clinical trial.
|
5,000,000
|
Upon the design and commencement of the third clinical trial.
|
5,000,000
|
Upon the completion of the third clinical trial.
|
20,000,000
|
Total
|
During the year ended May 31, 2015, the cash consideration paid for acquisition of the Technology has been expensed as research and development costs.
On August 26, 2015, the board of directors of the Company determined that the options to purchase up to 2,500,000 common shares of the Company’s common stock granted to the Vendors for the Technology, which were to vest upon the design and commencement of the first clinical trial, have vested. The total fair value of the vested options was calculated to be $496,345 (Note 10) and was expensed as research and development costs.
NOTE 4– RELATED PARTY TRANSACTIONS
Amounts due to related parties, other than notes payable to related parties (Notes 8 and 9) at May 31, 2016 and 2015:
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
Due to the Chief Executive Officer (“CEO”) and President
|
|
$
|
66,254
|
|
|
$
|
23,054
|
|
Due to the Vice President (“VP”), Corporate Strategy
|
|
|
95,575
|
|
|
|
60,228
|
|
Due to the VP, Technology and Operations
|
|
|
56,596
|
|
|
|
44,362
|
|
Due to the Chief Medical Officer
|
|
|
81,059
|
|
|
|
51,059
|
|
Due to a company owned by VP, Corporate Strategy and VP Technology and Operations
|
|
|
1,747
|
|
|
|
1,835
|
|
Due to the Chief Financial Officer (“CFO”)
|
|
|
6,419
|
|
|
|
3,000
|
|
Due to related parties
|
|
$
|
307,650
|
|
|
$
|
183,538
|
|
Amounts are unsecured, due on demand and bear no interest.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
During the years ended May 31, 2016 and 2015, the Company had the following transactions with related parties:
|
|
May 31,
2016
|
|
|
May 31,
2015
|
|
Management fees incurred to the CEO and President
|
|
$
|
43,200
|
|
|
$
|
21,600
|
|
Stock-based compensation incurred to the CEO and President (Note 10)
|
|
|
605,286
|
|
|
|
-
|
|
Management fees incurred to the CFO
|
|
|
12,000
|
|
|
|
6,000
|
|
Consulting fees incurred to the VP, Corporate Strategy
|
|
|
85,669
|
|
|
|
95,915
|
|
Consulting fees incurred to the VP, Technology and Operations
|
|
|
73,768
|
|
|
|
76,732
|
|
Cash consideration paid for Technology to the VP, Technology and Operations and VP, Corporate Strategy
|
|
|
-
|
|
|
|
100,000
|
|
Net payments made (received) for equipment acquired from (sold to) the VP, Technology and Operations and VP, Corporate Strategy
|
|
|
(8,911
|
)
|
|
|
8,500
|
|
Value of options issued and vested for Technology acquired from the VP, Technology and Operations and VP, Corporate Strategy, and recorded as part of research and development costs (Notes 3 and 10)
|
|
|
496,345
|
|
|
|
-
|
|
Inventory acquired from a company owned by VP, Technology and Operations and VP, Corporate Strategy
|
|
|
-
|
|
|
|
1,689
|
|
Consulting fees incurred to the Chief Medical Officer and recorded as part of research and development costs (Note 5)
|
|
|
50,000
|
|
|
|
70,000
|
|
Stock-based compensation incurred to the Chief Medical Officer (Notes 5 and 10)
|
|
|
262,874
|
|
|
|
203,829
|
|
Research and development costs incurred to a company controlled by the Chief Medical Officer
|
|
|
26,700
|
|
|
|
-
|
|
Accrued interest expense incurred to a significant shareholder, included in general and administrative expense (Note 8)
|
|
|
7,620
|
|
|
|
-
|
|
Accretion expense associated with a loan agreement entered into with significant shareholder (Note 9)
|
|
|
5,028
|
|
|
|
-
|
|
Total transactions with related parties
|
|
$
|
1,659,579
|
|
|
$
|
584,265
|
|
NOTE 5 – MATERIAL AGREEMENTS
Management Consulting Agreement
On January 13, 2015, the Company entered into a three-year Management Consulting Agreement (the “Consulting Agreement”) with Dr. John Sanderson, MD. Pursuant to the Consulting Agreement, the Company agreed to pay Dr. Sanderson a monthly consulting fee of $10,000. In addition, the Company agreed to pay Dr. Sanderson a signing bonus of $10,000, plus an additional $10,000 as compensation for the past consulting services (Note 4). In the event of early termination without cause $60,000 will become payable to Dr. Sanderson.
The Company also issued to Dr. Sanderson non-transferrable options to purchase up to 2,400,000 shares of the Company’s common stock at an exercise price of $0.67 per share. The options vest quarterly starting on March 31, 2015 in equal portions of 200,000 shares per vesting period, and expire on the 5th year anniversary of the applicable vesting date subject to early termination provisions in the event that Dr. Sanderson ceases to act for the Company in any capacity. As of May 31, 2016, the options to purchase up to 1,000,000 shares of the Company’s common stock had vested. During the year ended May 31, 2016, the Company recorded stock-based compensation of $262,874 (2015 - $203,829) in connection with the vesting of these options (Note 10).
During the year ended May 31, 2016, the Company and Dr. Sanderson reached an agreement to suspend his consulting services until further notice, since the Company decided to move its clinical and observational studies to Canada.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
Service Agreement for Observational Clinical Trials
On March 15, 2016, the Company entered into a service agreement with Nutrasource Diagnostics Inc. (“Nutrasource”) for its observational clinical studies in Canada (the “Clinical Studies”). The Clinical Studies will span over a 3 to 8 month period and will examine the effects of eBalance therapy on diabetes and associated complications. The estimated cost of the Clinical Studies is approximately CAD$345,000, payable in monthly instalments of CAD$20,242 over a period of 17 months.
NOTE 6 – EQUIPMENT
On October 1, 2015, the Company entered into an eBalance Prototype Development Agreement (the “Development Agreement”) with an unrelated party (the “Developer”) for development of its first eBalance Professional Series Device (the “Prototype”). Based on the Development Agreement, upon delivery of the Prototype the Company paid the Developer $12,848 (EURO €12,000).
On December 15, 2015, the Company submitted its first manufacturing order with the Developer to manufacture 25 eBalance Professional Series devices (the “eBalance Pro Devices”) based on the Prototype delivered to the Company in November 2015. The Company incurred a total of $185,027 in costs associated with commissioning of 25 eBalance Pro Devices, which were recorded as part of equipment and are being amortized on a straight line basis over their estimated useful lives of three (3) years.
These prototypes were received in spring of 2016 and have been provided to various clinicians to aid the Company with collection of data.
During the year ended May 31, 2016, the Company sold equipment to a director of the Company for proceeds of $19,301 resulting in a gain on sale of equipment of $2,979 recorded in the statement of operations.
Amortization schedule for the equipment at May 31, 2016 and 2015:
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
Book value, beginning of the period
|
|
$
|
25,846
|
|
|
$
|
-
|
|
Changes during the period
|
|
|
201,840
|
|
|
|
27,801
|
|
Amortization
|
|
|
(20,603
|
)
|
|
|
(1,955
|
)
|
Book value, end of the period
|
|
$
|
207,083
|
|
|
$
|
25,846
|
|
NOTE 7 – INVENTORY
As at May 31, 2016, the inventory consisted of supplies held for resale, and was valued at $4,599 (May 31, 2015 - $707). The Company uses lower of cost or net realizable value to determine the book value of the inventory at reporting date.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
NOTE 8 – NOTES AND ADVANCES PAYABLE
The tables below summarize the short-term loans and advances outstanding as at May 31, 2016 and 2015:
As at May 31, 2016
|
|
Principal outstanding
|
|
|
Interest rate
per annum
|
|
Additional
description
|
|
Accrued
Interest / Accretion
|
|
|
Total Book
Value
|
|
$
|
195,000
|
|
|
|
6%
|
|
Convertible
|
|
$
|
18,588
|
|
|
$
|
213,588
|
|
|
490,000
|
|
|
|
6%
|
|
Non-convertible
|
|
|
12,842
|
|
|
|
502,842
|
|
|
197,000
|
|
|
|
6%
|
|
Related Party (Note 4)
|
|
|
7,620
|
|
|
|
204,620
|
|
|
50,000
|
|
|
|
6%
|
|
Related Party Term Loan
(Notes 4 and 9)
|
|
|
5,028
|
|
|
|
30,028
|
|
|
638
|
|
|
|
0%
|
|
Advances
|
|
|
-
|
|
|
|
638
|
|
$
|
932,638
|
|
|
|
|
|
|
|
$
|
44,078
|
|
|
$
|
951,716
|
|
.
As at May 31, 2015
|
|
Principal outstanding
|
|
|
Interest rate
per annum
|
|
Additional
description
|
|
Accrued
Interest / Accretion
|
|
|
Total Book Value
|
|
$
|
195,000
|
|
|
|
6%
|
|
Convertible
|
|
$
|
6,147
|
|
|
$
|
201,147
|
|
|
10,000
|
|
|
|
6%
|
|
Non-convertible
|
|
|
67
|
|
|
|
10,067
|
|
|
62,585
|
|
|
|
0%
|
|
Advances
|
|
|
-
|
|
|
|
62,585
|
|
$
|
267,585
|
|
|
|
|
|
|
|
$
|
6,214
|
|
|
$
|
273,799
|
|
During the year ended May 31, 2016, the Company entered into a number of loan agreements with unrelated parties for a total of $480,000 (2015 - $205,000). These loans bear interest at 6% per annum, are unsecured and are payable on demand. During the same period, the Company entered into a number of loan agreements with Mr. Richard Jeffs (“Mr. Jeffs”), the Company’s major shareholder, for a total of $247,000 (2015 – $Nil). The loans for a total of $197,000 bear interest at 6% per annum, are unsecured and are payable on demand. The remaining loan for $50,000 bears interest at 6% per annum compounded annually, and is payable on March 3, 2017 (Note 9
)
.
During the year ended May 31, 2016, the Company repaid $60,212, net of additions, in non-interest bearing advances. These advances were unsecured and payable on demand.
As of May 31, 2016, the Company recorded $32,836 (2015 - $6,214) in interest expense associated with above loans, not including the interest accumulated on the Term Loan with Mr. Jeffs (Note 9).
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
Convertible Loans
During the year ended May 31, 2015, the Company signed two loan agreements with City Group LLC., (the “Lender”) for $125,000 and $70,000. The loans bear interest at 6% per annum, are unsecured and payable on demand. At the discretion of the Lender, the loans and accrued interest thereon can be converted into restricted shares of common stock of the Company at $0.50 per share. Since at the time of the transactions the conversion price was below the market value of the shares of the Company’s common stock, the Company recorded a beneficial conversion feature and associated non-cash financing costs of $88,900.
NOTE 9 – TERM LOAN
On March 3, 2016, the Company entered into a loan agreement (the “Term Loan Agreement”) with Richard Jeffs for a loan in the principal amount of $50,000 maturing March 3, 2017, with interest payable at a rate of 6% per annum (the “Term Loan”). As additional consideration for the Term Loan, the Company issued to the Mr. Jeffs share purchase warrants (the “Warrants”) for the purchase of up to 2,000,000 shares of the Company’s common stock, exercisable for a period of five years at a price of $0.15 per share if exercised during the first year, $0.25 per share if exercised during the second year, $0.40 per share if exercised during the third year, $0.60 per share if exercised during the fourth year and $0.75 per share during the fifth year. The Warrants were determined to be detachable from the debt instrument, as the debt instrument does not have to be surrendered to exercise the warrant. Under the guidance provided by ASC 470-20-25-2, proceeds from the sale of debt instrument with stock purchase warrants must be allocated to the two elements based on the relative fair values of the debt instrument without the warrants and of the warrants themselves at time of issuance. The portion of the proceeds allocated to the warrants was $25,000 and was recorded to additional paid-in capital.
The Term Loan has effective interest rate of 77.51%, which was due primarily to the recording of non-cash accretion interest. During the year ended May 31, 2016, the Company recognized accretion expense of $5,028 (2015 - $Nil).
At March 3, 2016, the fair value of Warrants was valued using the Black-Scholes Option pricing model using the following assumptions:
|
|
At March
3, 2016
|
|
Expected Warrant Life
|
|
5 years
|
|
Risk-Free Interest Rate
|
|
1.33%
|
|
Expected Dividend Yield
|
|
Nil
|
|
Expected Stock Price Volatility
|
|
16%
|
|
NOTE 10 – SHARE CAPITAL
During the year ended May 31, 2016, the Company did not have any transactions that resulted in the issuance of the shares of its common stock.
During the year ended May 31, 2015, the Company received a subscription for 150,000 units (each a “Unit”) at a price of $0.50 per Unit for total proceeds of $75,000. Each Unit consists of one share of the Company’s common stock and one warrant for the purchase of one additional share of the Company’s common stock, exercisable at a price of $1.00 per share, expiring one year after the issuance of the Units. As of May 31, 2016, the Units subscribed for have not yet been issued.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
Options
On November 25, 2014, as part of the technology purchase agreement dated for reference October 16, 2014, and as amended on October 28, 2014 and November 13, 2014, the Company issued to the vendors of the Technology (the “Vendors”) options for the purchase of up to 20,000,000 shares of the Company’s common stock at an initial exercise price of $0.05 per share and expiring on the 5th year anniversary of the applicable vesting date, or on December 31, 2019, for those options that have not vested.
On August 26, 2015, the board of directors of the Company determined that the options to purchase up to 2,500,000 common shares of the Company’s common stock granted to the Vendors for the Technology, which were to vest upon the design and commencement of the first clinical trial, have vested.
The total fair value of the vested options was calculated to be $496,345 (Note 4) and was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:
|
At August
26, 2015
|
|
Expected Life of Options
|
5 years
|
|
Risk-Free Interest Rate
|
1.49%
|
|
Expected Dividend Yield
|
Nil
|
|
Expected Stock Price Volatility
|
216%
|
|
As of May 31, 2016, the remaining options for the purchase of up to 17,500,000 shares of the Company’s common stock remained unvested.
On January 13, 2015, the Company issued 2,400,000 non-transferrable options to its Chief Medical Officer. The options vest quarterly starting on March 31, 2015, in equal portions of 200,000 shares per vesting period, and expire on the 5th year anniversary of the applicable vesting date.
The total fair value of the options was calculated to be $
591,503 and was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:
|
At January 13, 2015
|
|
Expected Life of Options
|
5 years from vesting
|
|
Risk-Free Interest Rate
|
1.37%
|
|
Expected Dividend Yield
|
Nil
|
|
Expected Stock Price Volatility
|
27%
|
|
As of May 31, 2016, options to acquire up to 1,000,000 shares of the Company’s common stock have vested, and the Company recognized $262,874 (2015 - $203,829) (Note 4) as share-based compensation expense for the year ended May 31, 2016. Further $124,800 will be recognized in the future periods.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
On August 5, 2015, the Company issued to its CEO, President and a member of the board of directors options to purchase up to 2,500,000 shares of the Company’s common stock (the “CEO Options”). The CEO Options are exercisable at $0.35 per share, subject to the following vesting schedule:
Number of Options to Vest
|
Vesting Date
|
500,000
|
August 5, 2015
|
500,000
|
October 1, 2015
|
500,000
|
January 1, 2016
|
500,000
|
April 1, 2016
|
500,000
|
July 1, 2016
|
2,500,000
|
|
Any CEO Options that vest and become exercisable will expire on the 5th year anniversary of the particular vesting date, subject to certain early termination provisions, upon the death of the optionee, or if the optionee ceases to act for the Company in any capacity either voluntarily or as a result of a termination or removal for cause.
The total fair value of the options was calculated to be $616,886 and was determined using the Black-Scholes option pricing model at the grant date using the following assumptions:
|
At August 5, 2015
|
|
Expected Life of Options
|
5 years from vesting
|
|
Risk-Free Interest Rate
|
1.65%
|
|
Expected Dividend Yield
|
Nil
|
|
Expected Stock Price Volatility
|
218%
|
|
Of the total fair value of the options $605,286 (Note 4) was recognized as share-based compensation expense for the year ended May 31, 2016 and remaining $11,600 will be recognized in the first quarter of fiscal 2017.
On September 23, 2015, the Company issued 150,000 non-transferrable options to a consultant. The options vested immediately and expire on September 1, 2017.
The total fair value of the options was calculated to be $20,364 and was recorded as share-based compensation for consulting fees during the year ended May 31, 2016. The fair value of the options granted was determined using the Black-Scholes Option pricing model at the grant date using the following assumptions:
|
At September 23, 2015
|
|
Expected Life of Options
|
1.94 years
|
|
Risk-Free Interest Rate
|
0.7%
|
|
Expected Dividend Yield
|
Nil
|
|
Expected Stock Price Volatility
|
214%
|
|
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
The changes in the number of stock options outstanding during the years ended May 31, 2016 and 2015 are as follows:
|
|
Year ended
May 31, 2016
|
|
|
Year ended
May 31, 2015
|
|
|
|
Number of
options
|
|
|
Weighted average exercise price
|
|
|
Number of
options
|
|
|
Weighted average exercise price
|
|
Options outstanding, beginning
|
|
|
22,400,000
|
|
|
$
|
0.12
|
|
|
|
-
|
|
|
|
n/a
|
|
Options granted
|
|
|
2,650,000
|
|
|
$
|
0.34
|
|
|
|
22,400,000
|
|
|
$
|
0.12
|
|
Options outstanding, ending
|
|
|
25,050,000
|
|
|
$
|
0.14
|
|
|
|
22,400,000
|
|
|
$
|
0.12
|
|
Options exercisable, ending
|
|
|
5,650,000
|
|
|
$
|
0.27
|
|
|
|
200,000
|
|
|
$
|
0.67
|
|
Details of options outstanding and exercisable as at May 31, 2016 are as follows:
Exercise price
|
Grant date
|
Number of options
granted
|
Number of options
exercisable
|
$0.05
|
November 25, 2014
|
20,000,000
|
2,500,000
|
$0.67
|
January 13, 2015
|
2,400,000
|
1,000,000
|
$0.35
|
August 5, 2015
|
2,500,000
|
2,000,000
|
$0.20
|
September 23, 2015
|
150,000
|
150,000
|
|
|
25,050,000
|
5,650,000
|
At May 31, 2016, the weighted average remaining contractual life of the stock options outstanding and exercisable was 4.27 years.
On March 3, 2016 (the “Effective Date”) the Company issued non-transferrable share purchase warrants to acquire up to 2,000,000 shares of the Company’s common stock expiring on March 3, 2021, to Mr. Jeffs as additional consideration for the Term Loan (Note 9). The exercise price of these warrants is as follows:
Period expiring on:
|
Exercise Price
|
March 3, 2017
|
$0.15
|
March 3, 2018
|
$0.25
|
March 3, 2019
|
$0.40
|
March 3, 2020
|
$0.60
|
March 3, 2021
|
$0.75
|
As at May 31, 2016, the Company has 2,000,000 (May 31, 2015 – Nil) warrants outstanding. The remaining contractual life of the warrants was 4.75 years.
CELL MEDX CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
MAY 31, 2016
The reported income taxes differ from the amounts obtained by applying statutory rates to the loss before income taxes as follows:
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
Net loss
|
|
$
|
(2,139,137
|
)
|
|
$
|
(1,032,165
|
)
|
Statutory tax rate
|
|
|
34%
|
|
|
|
34%
|
|
Expected income tax recovery
|
|
|
(727,307
|
)
|
|
|
(350,936
|
)
|
Permanent differences
|
|
|
296,884
|
|
|
|
99,528
|
|
Temporary differences
|
|
|
7,005
|
|
|
|
665
|
|
Difference in foreign tax rates
|
|
|
1,345
|
|
|
|
1,408
|
|
Change in valuation allowance
|
|
|
422,073
|
|
|
|
249,335
|
|
Income tax recovery
|
|
$
|
-
|
|
|
$
|
-
|
|
The Company’s tax-effected future income tax assets and liabilities are estimated as follows:
|
|
May 31, 2016
|
|
|
May 31, 2015
|
|
Deferred income tax assets (liabilities)
|
|
|
|
|
|
|
Losses carried forward
|
|
$
|
693,708
|
|
|
$
|
279,970
|
|
Equipment
|
|
|
7,670
|
|
|
|
(665
|
)
|
Less: Valuation allowance
|
|
|
(701,378
|
)
|
|
|
(279,305
|
)
|
Net deferred income tax assets
|
|
$
|
-
|
|
|
$
|
-
|
|
At May 31, 2016 and 2015, the Company had a deferred tax asset that related to net operating losses. A full valuation allowance has been established; as management believes it is more likely than not that the deferred tax asset will not be realized.
As at May 31, 2016, the Company had net operating loss carry forwards of approximately $1,977,972 (2015 - $774,500) to reduce future federal and state taxable income. The Company also had non-capital loss carry forwards of approximately $66,874 (2015 - $25,000) to reduce Canadian taxable income. These losses expire by 2036.
The Company is not currently subject to any income tax examinations by any tax authority. Should a tax examination be opened, management does not anticipate any tax adjustments, if accepted, that would result in a material change to its financial position.
NOTE 12 – SUBSEQUENT EVENTS
|
Loan Agreements
Subsequent to the year ended May 31, 2016, the Company received $75,000 under loan agreements with non-related parties and $74,278 (CAD$96,500) under loan agreements with Richard Jeffs. The loans bear interest at 6% per annum, are unsecured, non-convertible and payable on demand.